In recent times, Pakistan along with other countries has seen a rapid increase in the prices of automobiles. The main reason behind this is the rise in prices of raw materials like steel and plastic. In addition to this, a hike in the shipping cost has also been a contributing factor.
A 40-foot container of commodities being transported by sea from Asia to Europe currently costs more than $10,500. This is an increase of 547% on average in the past five years.
The price of steel, cold-rolled coil (CRC), price per kilogram jumped Rs93 to around Rs240, periodically, during the last 18 months or so.
Prices of many products like furniture, vehicle parts etc have crept up recently. A host of reasons, including rising demand, container scarcity, overburdened ports, and a shortage of ships and dock personnel, have all contributed to the tightening of transportation capacity on all freight routes. Covid outbreaks in export centres across the globe have amplified the problem.
Shipping expenses, which were often disregarded as having little influence on inflation since they were such a small proportion of the entire cost, are now compelling some economists to give them more attention. Many industries are trying to work around these costs which are eating up their profit margins and pulling them far away from breaking even. Some companies have ceased exporting to certain countries, while others are seeking commodities or raw materials in closer areas.
The experts are also of the view that government should control the foreign exchange as in July the prices have gone from Rs158.09 to Rs163.45..
These freight costs when narrowed down on a local level relate closely to the increase in prices of steel hence affecting the costs of containers, automobiles, vehicles, etc. The increase in local steel prices is directly connected to the increase in prices internationally, which has coincided with a resurgence in global demand following the vaccination campaign and continued port bottleneck difficulties, particularly in South Asia.
While the former is a key influence in raising local pricing, the latter is also proving to be a significant impact, as it is harming steel imports, allowing parties involved to shift these costs to consumers. In an effort to raise bar costs, several steel bar producers stopped receiving new booking orders from builders in the beginning of summer season.
Steel bar prices increased by Rs5,000 per ton to Rs142,500-178,500 per ton in mid-May, citing an unexpected increase in international scrap costs. This has also put the government of Pakistan’s house-building schemes along with other attempts to flourish consumer industries in jeopardy.
The car industry’s expansion has also been hampered by a sharp and unprecedented spike in raw material prices. Automobile manufacturers are under cost pressure, which will probably force them to pass the cost on to customers. Prices in the Pakistani motorcycle industry are already on a rise.